Relief This was an action at law, so the plaintiff was requesting monetary

Requested: damages for breach of contract and destruction-of-premises.

Legal Theory of contracts; impracticability of performance and frustration of

Theory: purpose.

Proced. His: Trial Court held for Mel Frank. They found that Mel Frank had “no reason to believe or [know] that chemicals classified as hazardous would be stored in the warehouse.” They concluded that the lease was breached by the defendants for vacating the premises, and owe the sum of $55,913.77 for rent [and 2,357.00 for damage to the property]. Defendant appealed the judgment.

Facts: Di-Chem is a chemical distributor. In May, 1994, Di-Chem began negotiating with Mel Frank to lease space for storage and distribution of chemicals. Mel Frank’s real estate agent handled the transaction, and there was no face-to-face meeting of the parties. When asked what they would be selling, Di-Chem responded “chemicals”.

Shortly thereafter, an Iowa State Bar Association form for lease was signed by Di-Chem. The lease was to start June 1, 1994 and end May 31, 1997. The lease limited the use of premises to storage and distribution.

Some of the chemicals stored were hazardous, but there was no evidence that Mel Frank knew of this at the time.

The lease stated several things that bear on the case:

(1) Make no unlawful use of the premises

(2) Comply with all city ordinances

(3) Destruction-of-premises clause (either party could terminate)

On July 21, 1995, city officials inspected the premises and decided that there were many things on the premises that violated the 1994 Uniform Fire Code, which would cover the Hazardous Materials being stored at the facility. All Hazardous Chemicals must be removed within 7 days to eliminate the hazard.

Several attempts were made between the parties to resolve the situation, but on October 23, 1995, Di-Chem gave notice it would vacate.

Issue: May defendant voluntarily terminate the lease agreement based upon defendant’s position that the warehouse could not be used for storing hazardous materials, based on the city’s inspection, because of frustration of purpose or impracticability?

Holding: Di-Chem failed to establish-as a manner of law-that it is entitled to relief via its impossibility defense or the terms of the lease. We affirm the lower court’s decision.

Reasoning: The court made its decision based on the section 265 of the Restatement and Conklin v. Silva, 187 Iowa 819. The rule in the restatement deals with the problem that arises when a change in circumstances makes one part’s performance virtually worthless to the other, frustrating the purpose in making the contract. The obligor’s contractual obligations is discharged only if three conditions are met:

(1) Purpose that is frustrated must have been a principal purpose

(2) The frustration must be substantial

(3) The non-occurrence of the frustrating event must have been a basic assumption on which the contract was made

In Conklin, the lessees were to use the premises for an iron, metal, and rag business. They were not to use the premises for any business deemed extra hazardous on account of fire. About a month after the lease was formed, the Iowa legislature passed a statute regarding the fire hazard of storing rags, unless they were stored in a fireproof building. Although Conklin could no longer store rags, he still had the other portion of his business to fall back on. Therefore, there was no frustration of purpose.

Di-Chem claimed that the trial court had erred because Di-Chem had exhibited frustration of purpose. However, the Court felt that Di-Chem had not carried its burden of proof. There was no evidence that the entire chemical inventory consisted of hazardous chemicals. They had other types of chemicals that could still be stored there.

They presented no evidence of what percentage of their inventory was hazardous, and what that would mean in lost profits. There is insufficient evidence that the city’s action deprived Di-Chem of the beneficial enjoyment of the property for other uses. They could still store and distribute their other chemicals and possibly still make a profit. Therefore the court could not find for Di-Chem on the basis of frustration or impracticability.